How to Calculate Cap Rate in Excel

by

Cap Rate Calculator

Include taxes, insurance, and maintenance. Exclude mortgage payments.

Calculation Results

Net Operating Income (NOI): $0.00

Capitalization Rate: 0.00%

function calculateCapRate() { var val = parseFloat(document.getElementById("propertyValue").value); var income = parseFloat(document.getElementById("grossIncome").value); var expenses = parseFloat(document.getElementById("operatingExpenses").value); var resultDiv = document.getElementById("capRateResult"); if (isNaN(val) || isNaN(income) || isNaN(expenses) || val <= 0) { alert("Please enter valid positive numbers for all fields."); return; } var noi = income – expenses; var capRate = (noi / val) * 100; document.getElementById("displayNOI").innerText = "$" + noi.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById("displayCapRate").innerText = capRate.toFixed(2) + "%"; resultDiv.style.display = "block"; }

Understanding the Cap Rate Calculation

The Capitalization Rate (Cap Rate) is a fundamental metric used in real estate to assess the potential return on a property investment. It represents the ratio between the Net Operating Income (NOI) produced by an asset and its original cost or current market value.

The Cap Rate Formula

Cap Rate = (Net Operating Income / Current Market Value) × 100

How to Calculate Cap Rate in Excel

If you prefer to manage your real estate portfolio in a spreadsheet, calculating the cap rate in Excel is straightforward. Follow these steps:

  1. Input Data: In cell A1, enter the Property Value (e.g., 500000). In cell A2, enter the Gross Rental Income (e.g., 60000). In cell A3, enter the Total Operating Expenses (e.g., 15000).
  2. Calculate NOI: In cell A4, enter the formula =A2-A3. This gives you the Net Operating Income.
  3. Calculate Cap Rate: In cell A5, enter the formula =A4/A1.
  4. Format: Select cell A5 and click the percent (%) button in the Excel toolbar to display the result as a percentage.

A Practical Example

Imagine you are looking at a multi-family property listed for $1,200,000. The annual rent collected is $120,000. After accounting for property taxes, insurance, and repairs, the annual expenses total $30,000.

  • Gross Income: $120,000
  • Expenses: $30,000
  • NOI: $90,000 ($120,000 – $30,000)
  • Cap Rate: 7.5% ($90,000 / $1,200,000)

Why Cap Rate Matters

Cap rate allows investors to compare different properties without the variable of financing (mortgages). A higher cap rate generally indicates a higher potential return, but often comes with higher risk. A lower cap rate usually signifies a "safer" investment in a high-demand area with lower risk but slower immediate cash flow.

Note: Cap rate does not include mortgage interest payments or capital expenditures. It focuses strictly on the operations of the asset itself.

Leave a Comment